Jiayuan In Investment Mode; Downgrade To Hold On Rich Valuation

By Shuli Ren

Jiayuan’s second-quarter results came out as expected, but the company fell short on third-quarter forecast, guiding $20.6 million midpoint revenue versus the consensus $21.8 million.

The Chinese dating site is investment mode in 2013. Stifel Nicolaus analysts George Askew and Zim Yin explain:

Management is pursuing an aggressive segmentation and mobile strategy which is requiring high investment this year.

Several new products are launching in 2H13 including the Android mobile app Jiayuan Voice Search that launched on August 19. Jiayuan Voice Search allows users to search for a match using voice input rather than traditional text. Also in the innovation queue for the balance of the year is a relaunch of the acquired Juedui100 brand and the rollout of some face recognition software to improve search match results.

Non-GAAP [operating margin] of 10.9% contracted ~8% y/y due to investments in R&D, marketing and mobile services. We expect [operating expense] as a % of revenue to remain elevated through 2013 as DATE continues its brand advertising campaigns, expands its personalized matchmaking services and invests in mobile products and services.

Both research firms are positive on Jiayuan’s investment prospects. Oppenheimer is “encouraged by DATE’s growth initiatives”, and Stifel Nicolaus “expects the benefits of the investment to emerge [in 2014] with revenue growth again in the mid-to-high 20% range, and profitability climbing a bit faster.”

But both have a Hold on Jiayuan and no longer offer a price target, because they want to see some returns from the investments first.

Oppenheimer again:

For most of the past year we have argued that DATE was worth 13x forward P/E, net of net cash of ~$3/ADS. The stock is now trading at ~22x 2014E P/E (~13x, net of cash). We believe that further multiple expansion would need to be driven by sustained improvement in sales growth and margins.

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Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.